Are you an independent writer or contractor following the path of self-employment? It does not matter what kind of self-employed you are; you deserve to buy the house of your dream. However, you may face hiccups when you are going to apply for a conventional mortgage. The self-employment brings a set of challenges that that you will face during the conventional loan. Usually, the problem arises when there are not enough documents to prove. In order to get approval for a mortgage, the borrower needs to apply documents including paycheck stubs and tax returns. However, bank statement home loan saves the customers from these little issues.
The bank statement mortgages prove to be saviors for the self-employed people. The mortgage requires 6-12 months of income verification, profit and loss statement, and 1-year tax return. But nevertheless, the borrowers commit a few common mistakes while applying for the bank statement home loans in Houston. If the lender approves the loan, he believes that the borrower enough funds for the closing costs and down payment.
- Not Understanding how the Mortgage Works
Instead of submitting W-2s and tax returns, the borrowers can utilize their business or personal bank accounts. Only in this way, they can prove their cash flow and income. However, the borrower still needs to submit similar documents as of the conventional loan. Not only do you have to maintain a decent credit score but you need to show two years of self-employment. In addition to the context, you must have enough liquid reserves for covering months of the mortgage payment. If you are a self-employed businessman, you may have to submit a business license as well. Another important document is the letter from an accountant or tax preparer to validate the business expenditure. Also, there should be proof of confirmed tax returns as a freelancer. Usually, the mortgage is a little bit riskier for the mortgage lenders. So, the borrower might have to deal with high-interest rates and large down payment.
- Irregular Activities may not be on Positive Side
You should be looking out for the monthly payment which does not relate to a credit account closed with an application. The credit report includes credit cards, debit accounts, student loans, and other loans if any. Many creditors do not even report to the major credit agencies also. When you have taken a personal loan from an individual, the details might not be visible in the credit report. So, you should keep track of the credit report.
- Undocumented Deposits with Hefty Amount
When there are outsize bank deposits, you need to understand the closing costs or down payment are from an unacceptable source. When there are borrowed funds, the additional monthly payments are likely to increase. If the lender allows borrowing a down payment, you need to disclose it. Also, a large amount of down payment refers to an illegal gift.
So, you can understand that applying for a bank statement home loan is like walking on thin ice, right? Of course, the lender can offer further guidance if needed.
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.